Sports bar to pay nearly $7 million in back wages

A popular Philadelphia sports bar and restaurant chain, Chickie’s and Pete’s, has agreed to pay current and former employees more than $6.8 million in back wages and damages. The chain, according to regulators, improperly took tips from servers and violated federal minimum wage, overtime and record-keeping laws.

Regulators said the proposed consent agreement signed by the chain followed one of the U.S. Department of Labor's largest tipped employee investigations in recent years.

The company and its owner, Peter Ciarrocchi Jr., agreed to pay $6,842,412 to 1,159 employees at nine of the company’s locations, plus a $50,000 civil money penalty.

“The egregious actions by Chickie’s & Pete’s harmed real people and violated the promise that a fair day’s work deserves a fair day’s pay,” U.S. Secretary of Labor Thomas E. Perez said. “Restaurant servers are among the lowest paid workers in this country, with many earning incomes below the poverty line. Tipped workers deserve better and this action shows that the Department of Labor is ready to stand up for them.”

Under the Fair Labor Standards Act, tips are the property of the employee who receives them; however, restaurant operators can benefit by claiming a credit based on the tips toward their obligation to pay those employees the full minimum wage. If an employee’s tips combined with the employer’s direct wages do not equal the minimum wage, the employer must make up the difference during the pay period.

An employer who claims a tip credit is required to pay a tipped employee only $2.13 an hour in direct wages – as long as that amount plus the tips received equals at least the federal minimum wage of $7.25 an hour. The federal minimum wage of $7.25 per hour was last increased in 2009 and the federal tip credit’s cash wage requirement of $2.13 has not been increased since 1991.

The government’s investigation found that the company required servers to contribute a portion of their tips to an improper “tip pool,” or tip-sharing arrangement, which was between 2 percent and 4 percent of the server’s daily table sales. The owner illegally retained about 60 percent of the tip pool.

This amount had come to be known as “Pete’s Tax” and was required to be paid to the manager in cash at the end of each shift, even if the server received all tips on credit cards and therefore did not have cash on hand. In some cases, the company required employees to use their own money to contribute to this pool by withdrawing cash from a nearby ATM or borrowing from another server.

Under the provisions of the consent judgment, Ciarrocchi will write an article for a restaurant trade publication that addresses an employer’s obligations under the FLSA.